Expect chaos in nascent mobile payment industry

Like most nascent tech markets, the mobile payment industry is likely to be defined by chaos in its early years.

During a panel discussion at Xconomy's Mobile Madness forum today, three mobile payment entrepreneurs said the mobile payment market will be messy for at least a few years as multiple companies come out with their own mobile payment platforms and scramble to get merchants to adopt them as their mobile payment method of choice.

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The first big challenge, the panelists said, was getting merchants to simply understand the value of mobile payments to their business. Seth Priebatsch, the CEO of SCVNGR, said one way to get merchants onboard would be to pitch mobile payments as a less-costly alternative to the swipe fees that stores pay for every debit card transaction they incur.

"Part of the reason that Starbucks pushes their own payment card is that you preload $20 onto your card and you pay the transaction fee just once," he said. "You can keep more of your money and give less of it to the big banks."

Chris Gardner, the cofounder of Paydiant, pointed to Starbucks' early success with its own mobile payment program as one reason that we're likely to see an explosion in different kinds of wallet applications that are tailored to one specific store in addition to the ones created by big-name tech brands such as Google, PayPal and the major mobile carriers. Essentially, merchants will figure that they can keep their customers loyal by offering them their own special deals over their own native applications without having to compete with other offers that might pop up on other wallet apps.

"[Starbucks] clearly wants to control their own wallets in addition to allowing for other ones," he said. "Their loyalty coupons, receipts and returns are what make it compelling to users and that's what they do really well."

Gardner also said the mobile payment industry was at least initially unlikely to consolidate on just one mobile payment method and would likely see fierce competition for merchants' attention and support.

"Folks like Google would like you to think that Google Wallet is the 'one wallet to rule them all,'" he said. "But in reality, the phone is the wallet and you have a lot of different options. We'll see multiple apps that have wallet-like functionality."

Andrew Paradise, the CEO of AisleBuyer, said it would take a long time for consumers to get used to paying for things with their smartphones before determining which platforms would ultimately thrive. Just as consumers were bombarded with options in the early days of credit cards, they also soon would be bombarded by mobile payment application options.

"Until we get the consumer used to pulling out their mobile phone and paying, [the industry] is going to be fragmented," said Paradise. "It's very hard to drive the mindshare of the consumer to pull out their mobile phone to pay for something instead of a credit card."

All that said, Priebatsch expected that just three or four major mobile payment platforms would emerge once all the dust settles, just as right now there are four major credit cards in the United States. The economies of scale for merchants in only accepting the most popular mobile platforms are simply too strong to sustain a highly competitive payment platform market for very long.

"I think there will be three winners, maybe two," he said. "People don't necessarily want to have their data shared across multiple different networks and merchants certainly want to have access to the most widely-used platforms... The universe will start off incredibly large and will compress down to three to four different platforms that work at tens of thousands of merchants."

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